Philippines to fare better this year compared to neighbors

MANILA, Philippines - The Philippines is expected to fare much better than its Asian neighbors despite declining exports and foreign direct investments (FDIs). The country’s economic performance “would not be as bad" as what the Asian Development Bank and the World Bank have earlier predicted, listed investment house First Metro Investment Corp. said. Economic growth will reach four percent this year—following the country’s 10-year average—sustained by declining inflation, OFW (overseas Filipino workers) remittances, and peso depreciation. “The projected GDP [gross domestic product] is at 4.1 percent," said Victor Abola, executive director at the University of Asia and the Pacific, and also with the FMIC-UA&P Capital Markets Research. The government is targeting to keep economic growth between 3.7 to 4.7 percent this year. Unlike the other economies in the region, the Philippines is much less dependent on both exports and FDIs, he said. Philippine exports contribute 45 percent to its GDP, lower than its regional peers which source 55 to 90 percent of its GDP from its goods sold abroad. Meanwhile, only two percent of the country’s economic output is attributed to FDI, compared to other countries’ six to eight percent. With oil prices expected to average $63 a barrel this year, inflation is expected to moderate to 4.4 percent. In 2008, which saw crude prices to rise to a peak of $145 a barrel, crude prices had an average of $90 a barrel. In August last year, inflation reached 12.5 percent, a 17-year high. The trend of a strengthening peso, which is currently trading at P46 to a dollar, is expected to be short-lived. For the year, the peso's average may come in between P48 and P54 to the greenback. "The foreign exchange is going to depreciate. There's no way that the BSP can prevent the foreign exchange from depreciating," said Abola. Although the government is targeting to tame its budget deficit to about P102 billion or 1.25 percent of GDP, FMIC said it expects it to be higher to about P200 billion or about 2 percent. Interest rates will also be slashed further by 50 basis points to 1 percent to provide more stimulus to domestic growth. With historical average of a three-year decline, Abola added that the global economy will suffer for about a year more before starting on its way to recovery. However, the gloomy global economic outlook poses opportunities such as M&A (mergers and acquisitions). "There are opportunities for acquisitions this year, said FMIC president Francisco Sebastian. He noted that big companies such as San Miguel Corp. and Metro Pacific Investments Corp. had been very active in taking advantage of the current low valuations. "We believe that there are opportunities for debt financing. The stock market will also generally remain weak," he said. Sebastian added that the local bourse has not bottomed out in 2008 despite wiping off nearly half of gains logged in 2007, when it reached a lifetime high at about 3,800 level. Jose Pacifico Marcelo, FMIC executive vice president for investment banking, said the company will be handling about P70 billion worth of deals. This includes P20 billion for the recapitalization requirements of the Bangko Sentral ng Pilipinas, P24 billion for corporate financing, and P36 billion for other prime corporates. But FMIC director Ismael Cruz said he also sees a recovery of the bourse within the year. - GMANews.TV